News beats Street views, Fox in line

DavidB. Wilkerson

NEW YORK (CBS.MW) -- Rupert Murdoch's News Corp. posted better-than-expected fiscal third-quarter earnings Wednesday morning, while the company's Fox Entertainment Group had a profit in line with most forecasts.

News'
NWS, +0.00%
profit from operations was $168 million,or 17 cents a U.S.-listed share, compared to $319 million or 32 cents a year-ago. Analysts polled by First Call were looking for a profit of 16 cents.

The company took a one-time after-tax loss of $71 million due mainly to foreign exchange losses in a satellite venture Net Sat "associated with the devaluation of the Brazilian Real in January."

Fox Entertainment Group
FOX, -2.43%
recorded net income of 1 cent a share vs. 14 cents in the year-ago period. That 1-cent profit matched the consensus view of analysts in a First Call survey.

News revenue slipped $3.1 billion vs. $3.2 billion for the same period in 1998. As expected, filmed entertainment suffered in comparison to a quarter fueled by record-setting box-office numbers from "Titanic." Fox revenue fell to $1.7 billion from $1.8 billion.

The Fox assets are the most easily identifiable portion of the Murdoch empire. Those assets, spun off to the public last November, include the Fox Broadcasting Network and the company's owned-and-operated television stations; Fox Filmed Entertainment, including the 20th Century Fox motion picture and television studios; the cable networks, including News' 50-percent interests in Fox/Liberty Networks and FX, the Fox Family Channel, FxM: Movies from Fox and the Fox News Channel; and the Los Angeles Dodgers.

Filmed entertainment generated $38 million in operating income, compared with $145 million in the year-ago period. Television operating income rose to $109 million from $102 million, driven by "solid demand for local and national advertising" and market share gains at the television stations, the company said.

Cash flow at the TV stations rose 16 percent from year-ago levels, helped by ratings increases for the Monday night lineup, which includes "Ally McBeal." The stations were also boosted by January's telecast of Super Bowl XXXIII.

As analysts expected, losses from NHL hockey games and higher programming costs from primetime shows offset part of that gain.

J.P. Morgan's Rich MacDonald told CBS.MarketWatch.com he's looking for "very powerful comparisons" between network advertising sales in this year's June period and those of 1998. He said "upfront" ad revenue, a key gauge of advance billing, looks "very strong" for the fall season.

Fox has also moved aggressively to reduce the compensation in provides to its affiliates. Beginning July 1, it will reclaim 22 percent of primetime advertising inventory from those affiliates. Merrill Lynch's Jessica Reif Cohen estimates that Fox could boost its annual revenue by more than $100 million with the plan.

At the cable networks, Fox/Liberty saw cash flow rise to $29 million from $22 million, but the net loss widened to $10 million from $5 million. The increases losses were blamed on higher affiliate deficits at Fox Liberty and Fox Family Channel.

Analysts had predicted such a decline on lower NBA ratings. Though the strike was settled at the end of the December period, many markets suffered a decline in viewer interest.

The Fox News Channel reduced its losses on improved advertising and subscription revenues.

Fox stock has been mostly stagnant since its Nov. 11 debut at just above 24.

It's that sluggishness that's been particularly baffling to some observers in light of the imminent release of George Lucas' latest installment in the "Star Wars" saga later this month. The film is expected to smash most, if not all existing box office records.

Barry Hyman, analyst at Ehrenkrantz King Nussbaum, told CBS.MarketWatch.com Fox stock was ignored when Liberty Media chieftain John Malone opted to grab $1.4 billion of News Corp. stock in exchange for the company's 50-percent stake in the Fox/Liberty Sports venture.

"Malone's now the largest shareholder in News Corp ... not Fox," Hyman said.

Hyman does believe the "Star Wars" prequel will boost the stock this summer, and he says the shares are a good long-term play anyway. "I think if you're going to be in one sector of entertainment and media, it should be in content, and that's where Fox is."

Newspapers, etc.

News Corp.'s newspapers, which include The New York Post, Britain's The Sun, and many others, saw income from operations rise to $120 million from $109 million.

The company's satellite assets, including BSkyB, JSkyB, Sky Latin America, Australia's FOXTEL and others, continued to post significant losses. In Brazil and much of Asia, these entities are plagued by currency difficulties.

Operating income at magazines and free-standing inserts fell to $97 million from $114 million.

Hyman says investors have consistently undervalued News stock due to concerns about Murdoch's tendency to pay "top dollar" for all of his acquisitions. But the Liberty deal struck investors as a clear endorsement from the respected Malone. Yet, after an initial run-up from 30 to 34 just after the transaction was announced in early April, the shares have retreated a bit.

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